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Finance
6.4 Analysing the financial performance of a business
Components of a statement of financial position:
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Cards (101)
What is another name for the statement of financial position?
Balance sheet
Equity represents the
owner's
stake in the business.
True
Steps in analyzing a sample statement of financial position:
1️⃣ Review the components
2️⃣ Understand the equation
3️⃣ Calculate equity if necessary
4️⃣ Assess financial health
Equity represents the business's net
worth
In the basic accounting equation, equity represents the owners' stake in the
business
What does equity represent in a business?
Net worth
The basic accounting equation states that assets equal liabilities plus equity.
True
Equity represents the
owners'
stake in the business.
True
Non-current assets are held for
long-term
use to provide operational benefits.
True
Liabilities represent what a business owes to external parties.
True
Current liabilities are obligations that must be paid within
one year
Share capital represents the amount invested by
shareholders
in exchange for shares.
True
Match the component of equity with its definition:
Share Capital ↔️ Amount invested by shareholders
Retained Earnings ↔️ Profits kept and reinvested
The statement of financial position adheres to the
basic accounting equation
.
True
The basic accounting equation states that a business's
assets
are equal to the sum of its liabilities and equity.
Assets
are what a business owns and can use to generate future economic
benefits
.
Match the asset category with its example:
Current Assets ↔️ Cash
Non-Current Assets ↔️ Property
Match the liability type with its example:
Current Liabilities ↔️ Accounts payable
Non-Current Liabilities ↔️ Long-term loans
Match the liability type with its definition:
Current Liabilities ↔️ Obligations paid within one year
Non-Current Liabilities ↔️ Obligations due beyond one year
Match the equity component with its definition:
Share Capital ↔️ Amount invested by shareholders
Retained Earnings ↔️ Profits kept by the company
Steps for preparing a statement of financial position
1️⃣ Identify assets
2️⃣ Identify liabilities
3️⃣ Calculate equity
4️⃣ Ensure the accounting equation balances
The basic accounting equation is
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Assets =
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Liabilities - Equity
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Eq
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.
False
The statement of financial position shows a business's financial position over a period of time.
False
Equity represents the business's net worth, which is the difference between its assets and
liabilities
.
True
The basic accounting equation is
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=
Liabilities =
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+
Assets +
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+
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Equity
Eq
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y
.
False
Liabilities are obligations a business owes to external parties.
True
Non-current assets cannot be converted to
cash
within one year.
True
Non-current assets are held for short-term use and quick conversion to cash.
False
Current liabilities must be paid within
one year
.
True
What is the time frame for current liabilities?
Within one year
What are three examples of non-current liabilities?
Long-term loans, bonds payable, deferred tax liabilities
What is share capital in equity?
Money invested by shareholders
What is the importance of liabilities in the accounting equation?
Represents financial obligations
What do liabilities represent in the statement of financial position?
What the business owes
What does the relationship between assets, liabilities, and equity ensure in the balance sheet?
It always balances
What does the statement of financial position show at a specific point in time?
Assets, liabilities, and equity
What do liabilities represent in the basic accounting equation?
Obligations to external parties
What is the key difference between current and non-current assets?
Liquidity
Liabilities represent what the
business
owes to external parties.
True
The balance sheet provides a snapshot of the business's financial
position
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